Thank you, Mr. Chairman and Members of the Committee for providing me this opportunity to provide the Department of Justice’s views on Internet gambling and H.R. 4419, the "Internet Gambling Funding Prohibition Act." H.R. 4419 would prohibit persons engaged in gambling businesses from accepting payment in virtually any form in connection with Internet gambling.

While we are supportive of the goals of this legislation, the Department does have several concerns about this legislation, which I will be discussing.  First, the Department believes that any legislation that effects the Internet should:  1) treat physical activity and "cyber" activity in the same way; 2) be technology neutral; and 3) be carefully crafted to accomplish the legislation’s objectives without stifling the growth of the Internet or chilling its use as a communications medium.  Second, the proposed legislation does not specifically limit its prohibition to gambling that is conducted in violation of federal or state law.  To better focus the legislation, the Department believes that the bill should be amended to prohibit the use of financial instruments and systems in connection with illegal gambling.  We would be happy to work with you on your legislation to combat illegal gambling.

The growing availability of emerging technologies has had a prolific effect on gambling.  The Internet and other new technologies have made possible types of gambling that were not feasible a few years ago.  For example, a U.S. citizen can now log on from his living room and participate in an interactive Internet poker game operated from a computer located in Antigua.  Not only have the Internet and other new technologies brought gambling into the home,  they have made it anonymous and readily available to virtually anyone at any time and at any place where there is an Internet hookup.  As a result, the number of Internet gambling sites operating illegal betting and wagering businesses online has increased at an alarmingly rapid rate.  The Department is deeply troubled by this proliferation of gambling on the Internet.

We share your concern about the adverse effects of gambling (e.g., on children, who may have access to illegal gambling activities over the Internet), which could be exacerbated as more and more Internet gambling sites are created.  While we are supportive of the goals of  this legislation, we would like to share with you some implementation and other concerns that are raised by H.R. 4419.  The Department of Treasury will present additional concerns.  We look forward to working with you and your staff on ways to address these concerns.

As a preliminary matter, the Department of Justice believes that legislation such as H.R. 4419 that effects the Internet should have three important characteristics: First, such legislation should treat physical activity and "cyber" activity in the same way.  If activity is prohibited in the physical world but not on the Internet, the Internet will become a safe haven for that criminal activity.  On the other hand, it is hard to explain why conduct previously deemed acceptable in the physical world should suddenly become criminal when committed in cyberspace.  Therefore, we strongly recommend that the legislative treatment of payment for Internet gambling be consistent with the treatment of payment for gambling via other wire and wireless methods of communication.

This leads to my next point, which is that any legislation should be technology neutral.  Legislation that is tied to a particular technology may quickly become obsolete and require further amendment.  As a result, we believe it prudent to identify the conduct we are trying to prohibit,  and then prohibit that conduct in technology-neutral terms.

Third, it is critical that the law recognize that the Internet is different from prior modes of communication in that it is a multi-faceted communications medium that allows for both point-to-point transmission between two parties, like the telephone, as well as widespread dissemination of information to a vast audience like a newspaper.   Because of the unique nature of the Internet, any prohibitions affecting Internet communications must be carefully drafted to accomplish the legislation's objectives without stifling the growth of the Internet or chilling its use as a communication medium for protected speech.
 
With that in mind, we have several concerns about this legislation.

First, we have concerns because this legislation in not aimed solely at illegal gambling.   This bill would prevent any "person engaged in a gambling business" from knowingly accepting "in connection with the participation of another person in Internet gambling" virtually any bank instrument.  The language does not specifically limit its prohibition to gambling that is conducted in violation of state or federal law.  Although most forms of interstate Internet gambling currently are prohibited under 18 U.S.C. § 1084, not all activities involving the Internet (especially intrastate activities) are covered by existing law.  To better focus this legislation, we believe the bill should be amended to prohibit the use of financial instruments and systems in connection with illegal gambling, instead of prohibiting the use of financial instruments and systems in connection with lawful gambling activity.

Second, we have concerns about some of the definitions used in the bill.  For example, Section 3(b)(5) of the bill defines "Internet gambling" as "mak[ing] a bet or wager by any means which involves the use, at least in part, of the Internet."  As noted above, the Justice Department believes that, absent some compelling reason, legislation should treat physical activity and cyber activity in the same manner, and that legislation should be technologically neutral.  Thus, we believe that this legislation should be amended to apply to all illegal gambling activity conducted in interstate or foreign commerce by whatever means, whether by Internet, telephone, facsimile, wireless phone, satellite dish, or other future transmission method.

Finally, as the Department has stated in connection with other pending legislation regarding Internet gambling, we recommend that the legislation make it clear that it is not intended to repeal or amend the Indian Gaming Regulatory Act (IGRA).

In addition to expressing concerns about specific provisions of the Internet Gambling Funding Prohibition Act, I would like to make a few comments about the interaction between this bill and the Internet gambling bills pending in Congress.  First, we are pleased that H.R. 4419 does not provide exemptions for certain specific forms of gambling, such as wagering on horse races, dog races, and jai alai.  In contrast, H.R. 3125 would actually expand the types of gambling that would be allowed over the Internet; and allow individuals, including children and compulsive gamblers, to use the Internet to engage in activities that would be prohibited in the offline world.

Second, we note that H.R. 4419 defines the term "Internet gambling" as placing, receiving, or otherwise making a bet or wager by any means which involves the use, at least in part, of the Internet.  Both H.R. 3125 and S. 692 provide exemptions for certain forms of gambling occurring over a private network or a closed-loop subscriber-based system.    A closed-loop subscriber-based system can consist of my receiving a free disk in the mail, loading it on my computer, connecting through my regular Internet service provider, and starting to bet from my home.

As noted above, H.R. 4419 is not limited to payments for illegal gambling.  Thus, if both H.R. 4419 and one of the pending Internet gambling bills are enacted in their present form, certain forms of gambling will be legal over closed-loop, subscriber-based systems or private networks but the gambling businesses offering those forms of gambling may be prohibited from accepting certain forms of payment.  We believe that all of these possible inconsistencies are best  remedied by enacting the Department of Justice’s proposed legislative amendments to 18 U.S.C. § 1084, which  would extend the prohibitions of the existing Section 1084 to cover all forms of Internet gambling in a more technologically-neutral manner, and then linking any efforts to prohibit the funding of illegal gambling businesses to those businesses that are accepting bets or wagers in violation of revised Section 1084.  A copy of the Department’s proposed legislation is attached.

I want to thank the Committee on Banking and Financial Services for asking me to present the Department’s views on H.R. 4419.  I would be pleased to answer any questions that you may have.